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U.S. v. Microsoft: The Appeal

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from: Ken Auletta
to: Thomas Hazlett

Posted Wednesday, Feb. 28, 2001, at 11:30 PM ET

Tom,

We agree: The Court of Appeals did do major damage to the government's case against Microsoft these past few days. We disagree: It is not a slam dunk that the higher court will dismiss "much of the District Court ruling," and this is because changing the subject to Judge Jackson's behavior does not change the nature of Microsoft's misbehavior.

The weakness of the government's case has always been flimsy proof that Microsoft's actions harmed consumers, or foreclosed Netscape from competing, or that Microsoft would be able to leverage its desktop dominance to all other platforms, and therefore the remedy must be to break Microsoft in two and do it fast, without court-mandated hearings. Anyone who sat in the appeals court on Monday and Tuesday had to be impressed with the rigor of the justice's questions. They knew the government had not applied the traditional measure of harm to consumers in an antitrust case—predatory pricing—because software prices are going down and because Microsoft was offering, as you note, a free browser. Instead, the government contended that consumers were harmed because Microsoft's thuggish behavior blocked innovation. The thuggish behavior is true but, of course, the consumer harm is speculative. How can you prove something that didn't happen?

Although trial evidence demonstrated that Microsoft tried to "foreclose" Netscape, the only major issue on which Judge Jackson sided with Microsoft was revealed when he ruled that Microsoft failed to foreclose them because, for example, Netscape in 1998 successfully downloaded 60 million copies of its browser (this was one of those flimsy "facts" that neither side could explain in court this week—did this represent 60 million users or 60 million attempted but not completed downloads?). Judge Jackson did assert as a "fact" that Microsoft would be able to extend its monopoly to hand-held and other devices and platforms, which was an assertion. In fact, Microsoft has so far failed miserably at extending its software hammerlock to these platforms. The PalmPilot, for example, enjoys a Microsoftlike 70 percent market share. Thus, as the judges implicitly recognized, the marketplace is already punishing Microsoft without the imposition of a complicated, government-engineered breakup. And, as the justices amply demonstrated, Judge Jackson did rather cavalierly rubber-stamp this government recommendation.

I grant you this, and more. But you imply that Microsoft has an enviable position on appeal, and I'd just like to pause before drinking this Kool-Aid.

After a lengthy trial, district court Judge Thomas Penfield Jackson found Microsoft guilty on almost all counts of violating the antitrust laws. They were guilty, he found, of being a predatory monopoly, of illegally maintaining that monopoly, of seeking to foreclose competition (though it failed to foreclose Netscape), of inflicting consumer harm, of illegally tying one product (a browser) to another (Windows), of acting to extend its monopoly into other platforms. And Microsoft's predations would only cease, he concluded, if Microsoft were broken up. Since the appeals court is supposed to defer to the district court's facts and overrule only if the trial judge misread the law, even after the two good days Microsoft had in court this week if you're a betting man, Tom, you'd have to concede that the odds are long against Microsoft winning everything on appeal. Unless, that is, you believe the appeals court will vacate Jackson's rulings because he showed bias, as opposed to bad judgment, in talking to journalists like me. This is a real long shot. One, maybe two judges indicated from the bench they might be prepared to vacate; a clear majority did not. And few legal scholars believe they would throw out the entire case.

Which brings us back to Judge Jackson's findings of fact. Microsoft's lawyers admitted this week in court that they only challenged about two dozen of Jackson's facts. Therefore, though many parts of Jackson's rulings are vulnerable on appeal, because he was the adjudicator –of facts, parts of his ruling are much less vulnerable. To be specific: I don't think "the government's central contention," as you write, was "that Microsoft pre-empted rivalry to its Windows franchise by nipping Navigator … ." I'm not a lawyer, but the heart of the government's case against Microsoft was that the company was a monopoly in the PC market and was a bad (as opposed to a "good") monopoly because it used foul means to maintain that monopoly.

The evidence the government produced did not concern just Netscape. Rather, it showed that Microsoft strong-armed a variety of companies—Compaq, IBM, Hewlett Packard, Apple, AOL, Sun, Intuit, and Intel, among others—to impede competition. Judge Jackson ruled that the facts revealed that the government's assertions were correct. This basic liability finding will be harder for the court of appeals to reverse.

A reason the government case looked weaker than it should have this week is that their lawyers were so lame. The government missed David Boies this week. And by that I mean they missed not just his brilliant storytelling skills; they missed his detailed knowledge of the case. Time and again the judges asked questions that the three attorneys who had not before been engaged in this case could not satisfactorily answer. Because of Boies' defense of Al Gore, one can understand why the Bush administration would not want him to continue as its lead attorney. What is harder to understand is why Attorney General Ashcroft would not have career attorney Phil Malone, who assembled much of the facts for the government, plead on behalf of the government (Malone sat mute at the government table this week). Nor is it clear why the Bush administration would spurn what I understand was an offer from former acting antitrust chief A. Douglas Melamed to argue the case.

Finally, you cite the rebuke the justices seemed to administer to Judge Jackson. They savaged his behavior, and at a minimum it seems clear they will not return this case to his courtroom. However, as I sat uncomfortably in court as Microsoft and the judges made me an actor in something I was chronicling, I was stunned that the government did not rise to Jackson's defense. After all, this conservative Republican jurist had lovingly embraced their entire case. I was also struck that Jackson was silent and thus there was no defense of his behavior. I'm running out of runway space here (1,000 words) so maybe we can wait until round two to discuss Judge Jackson.

Best,
Ken Auletta

dialogues
entries
1234
from: Ken Auletta
to: Thomas Hazlett

Posted Wednesday, Feb. 28, 2001, at 11:30 PM ET
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Ken Auletta is author, most recently, of World War 3.0: Microsoft and Its Enemies. Thomas Hazlett is a senior fellow at the Manhattan Institute. He formerly served as chief economist of the Federal Communications Commission.
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[Notes from the Fray Editor: Josh Pollack says "Fairly or not, anything that appears on Slate in regard to the Microsoft case is tainted." (And we still let you keep that star Josh…) Naturally we disagree anyway, but Fray postings are not written by us, and are not tilted or tainted, so read them all. A good discussion on the issues of law--and on Slate's coverage--starts here.]


Mr Auletta uses a nice sports metaphor--the government as referee, blowing a whistle on seeing a hard foul--to summarize his common sense approach. But he misunderstands the nature of this game: neither he nor the government lawyers can really understand what "rules" are best in this ever-changing contest. Our eyes and ears should not be on the players, but on the fans. Protecting competition (consumers) ain't the same thing as protecting competitors.

--Steve Walters

(To reply, click here.)


Regarding Microsoft's tying of Internet Explorer with their Windows operating system: While it is debatable what this has done for consumers, I want to point out that, historically speaking, tying is usually viewed by the Courts as an exclusionary practice, and thus illegal under the Sherman Act. From the International Salt decision in 1947 when Justice Jackson wrote "tying agreements serve hardly any purpose beyond the suppression of competition" through the 1980s, tying was viewed as a per se illegal action. Justice O'Conner in 1984, though, wrote a very insightful concurring opinion in Jefferson Parish Hospital v. Hyde where she argued that some economic reasoning was needed when the tying was obviously benefiting consumers, and since then, there has been much debate on the question of tying.

I do not think Judge Jackson "got it wrong" on the tying issue, and it seems to me that you are faulting him for not being short-sighted. Perhaps Microsoft's bundling of the browser with the OS is advantageous to consumers today, but Microsoft has, in effect, created an enormous barrier to entry which could drive out all competition in the browser market for the Windows operating system, and this is detrimental to the consumer. Less competition means less innovation and less response to consumer preference, and I think this is what Jackson was objecting to in his findings of fact. Tying is an incredibly complex issue, and I do not think you should criticize this brilliant man because of his differing perspective

--Gabra

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 Two points regarding Ken Auletta's comments.

He gives what would have been a good zinger a year ago--Microsoft stock is worth roughly half its December 1999 value, so how can stock market bulls be confident of a Microsoft victory. Unfortunately for Ken, this zinger loses most of its sting when you consider that many high-tech stocks have lost much of their value over the past year.

Secondly, he tries to excuse Judge Jackson's intemperate remarks by implying that he was really doing it for the sake of history. Since this is a historic case, certainly many people are interested in Judge Jackson's thoughts on the trial. However, this doesn't explain why he didn't simply wait until after the case was completely disposed with--he could then make all the comments he wanted without compromising himself.

--James Ayube

(To reply, click here.)

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